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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number O-8043
SOUTHERN MINERAL CORPORATION
(Exact name of Small Business Issuer as specified on its charter)
STATE OF NEVADA 36-2068676
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
17001 NORTHCHASE DR., SUITE 690, HOUSTON, TX 77060-2138
(Address of principal executive offices) (Zip Code)
Registrant telephone number, including area code 713/872-7621
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
As of August 14, 1995 there were 6,267,130 shares of the issuer's common stock
outstanding.
Traditional Small Business Disclosure Format (check one):
Yes x No
--- ---
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PART 1
SOUTHERN MINERAL CORPORATION
CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1995 1994 1995 1994
--------- --------- ---------- ---------
(000'S OMITTED)
(EXCEPT FOR PER SHARE)
REVENUES
OIL AND GAS $597 $464 $1,039 $891
INTEREST 24 11 45 23
GAINS (LOSSES) ON SALES OF PROPERTIES 62 3 61 21
OTHER 4 2 14 6
-------- ------ ------ -------
687 480 1,159 941
-------- ------ ------ -------
EXPENSES
PRODUCTION 183 148 276 299
EXPLORATION 28 64 193 1,197
DEPRECIATION AND
DEPLETION 179 77 280 262
VALUATION REDUCTION - ASSETS
HELD FOR DISPOSAL 0 0 0 1,334
GENERAL AND ADMINISTRATIVE 189 301 403 579
SEVERANCE BENEFIT 117 0 117 0
-------- ------ ------ -------
696 590 1,269 3,671
-------- ------ ------ -------
NET LOSS BEFORE INCOME TAXES (9) (110) (110) (2,730)
BENEFIT FROM INCOME TAXES 0 0 0 (545)
-------- ------ ------ -------
NET LOSS ($9) ($110) ($110) ($2,185)
======== ====== ====== =======
NET LOSS PER SHARE ($0.00) ($0.02) ($0.02) ($0.54)
======== ====== ====== =======
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 6,148 4,024 5,115 4,024
======== ====== ====== =======
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SOUTHERN MINERAL CORPORATION
CONDENSED BALANCE SHEET
JUNE 30, DECEMBER 31,
1995 1994
---------- ---------------
(000'S OMITTED)
ASSETS
CURRENT ASSETS
CASH $21 $55
MARKETABLE SECURITIES 1,657 1,569
RECEIVABLES 356 277
REFUNDABLE INCOME TAXES 16 10
OTHER 47 62
------- ------
TOTAL CURRENT ASSETS 2,097 1,973
------- ------
PROPERTY AND EQUIPMENT, AT COST
USING THE SUCCESSFUL EFFORTS METHOD
FOR OIL AND GAS ACTIVITIES
MINERAL RIGHTS 102 102
OIL & GAS PRODUCING PROPERTIES 5,835 3,544
UNPROVEN PROPERTIES 22 22
OFFICE EQUIPMENT & FURNITURE 158 160
ACCUMULATED DEPRECIATION AND DEPLETION (2,741) (2,481)
------- ------
TOTAL PROPERTY AND EQUIPMENT 3,376 1,347
------- ------
OTHER ASSETS
OIL AND GAS PRODUCING PROPERTIES HELD FOR SALE 0 50
------- ------
TOTAL ASSETS $5,473 $3,370
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $274 $290
------- ------
TOTAL CURRENT LIABILITIES 274 290
------- ------
DEFERRED INCOME TAXES 0 0
------- ------
STOCKHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $.01 PER SHARE
AUTHORIZED 10,000,000 SHARES AT
JUNE 30, 1995 AND DECEMBER 31, 1994,
ISSUED 6,355,519 AND 4,161,600 SHARES AT
JUNE 30, 1995 AND DECEMBER 31, 1994, RESPECTIVELY 63 42
ADDITIONAL PAID-IN CAPITAL 3,025 843
RETAINED EARNINGS 2,158 2,268
------- ------
5,246 3,153
LESS COST OF 87,680 AND 137,179 SHARES OF
COMMON STOCK IN TREASURY AT JUNE 30, 1995
AND DECEMBER 31, 1994, RESPECTIVELY (47) (73)
------- ------
TOTAL STOCKHOLDERS' EQUITY 5,199 3,080
------- ------
$5,473 $3,370
======= ======
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SOUTHERN MINERAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS
ENDED JUNE 30,
------------------------------
1995 1994
----------- -----------
(000'S OMITTED)
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS ($110) ($2,185)
ADJUSTMENTS TO NET LOSS 382 2,344
------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 272 159
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM SALES OF PROPERTIES 37 84
(INCREASE) DECREASE IN MARKETABLE
SECURITIES (88) 1,019
CAPITAL EXPENDITURES (291) (860)
------- ---------
NET CASH PROVIDED BY/(USED IN)
INVESTING ACTIVITIES (342) 243
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM ISSUANCE OF COMMON STOCK 36 0
DIVIDENDS PAID 0 (202)
------- ---------
NET CASH PROVIDED BY/(USED IN)
FINANCING ACTIVITIES 36 (202)
------- ---------
NET INCREASE (DECREASE) IN CASH (34) 200
CASH AT BEGINNING OF PERIOD 55 66
------- ---------
CASH AT END OF PERIOD $21 $266
======= =========
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SOUTHERN MINERAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The unaudited condensed financial statements included herein have been prepared
by the Registrant, pursuant to the rules and regulations of the Securities and
Exchange Commission. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Registrant's latest Annual Report to shareholders and the Annual Report to the
Securities and Exchange Commission on Form 10-K for the year ended December 31,
1994. In the opinion of the Registrant, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position as of June 30, 1995 and December 31, 1994, the results of operations
for the three months and six months ended June 30, 1995 and 1994, and
statements of cash flows for the six months then ended have been included.
Note B - Acquisition
On April 6, 1995, the Registrant completed the acquisition of Diverse
Production Co. ("DPC", subsequently renamed SMC Production Co.), a Texas
corporation, whose primary asset is its 15% general partner interest in Diverse
GP III, a Texas general partnership. The operating results of this acquisition
are included in the Registrant's consolidated results of operations from April
1, 1995. The unaudited consolidated results of operations on a pro forma basis
as though DPC had been acquired as of the beginning of the Registrant's fiscal
years 1994 and 1995 are as follows:
Six Months Ended June 30, 1995 1994
---------------------------------------------------------------------------------
(000's omitted, except per share data)
Revenues $ 1,409 $ 1,361
Net Loss (68) (2,045)
------------------ -----------------
Net Loss Per Share (.01) (.33)
================== =================
These pro forma results are not necessarily indicative of those that would have
occurred had the acquisition taken place at the beginning of 1994 or 1995,
respectively.
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SOUTHERN MINERAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
The Registrant recorded a loss of $9,000, or less than $.01 per share, for the
three months ended June 30, 1995, compared to a loss of $110,000, or $.02 per
share, in the comparable 1994 period. Registrant's 1995 second quarter results
include $91,000 of income attributable to its recently acquired interest in
Diverse GP III, a Texas general partnership ("DGP III"), which acquires,
explores for, develops and produces oil and natural gas. The acquisition has
approximately doubled the quantity of Registrant's proven oil reserves and
nearly quadrupled the quantity of its proven gas reserves.
On April 6, 1995, Registrant acquired SMC Production Co. (formerly named
Diverse Production Co.), a Texas corporation ("SMPC"), whose primary asset is
its 15% general partner interest in DGP III. Registrant's acquisition of SMPC
is consolidated for reporting purposes as of April 1, 1995. Registrant
acquired all of SMPC's outstanding capital stock in consideration for issuing
SMPC's shareholders an aggregate of 2,193,919 shares of Registrant's common
stock and options to acquire an additional 325,000 shares of common stock at
any time before April 7, 2000, at an exercise price of $1.25 per share. As a
result of this transaction, five individuals who are general partners in DGP
III now beneficially own approximately 35% of the Registrant's issued and
outstanding common stock. At the Registrant's annual meeting held May 17,
1995, four of these individuals were elected to the Registrant's board of
directors.
In the 1995 second quarter, oil sales volumes increased 10% from 21,146 barrels
to 23,187 barrels and gas sales volumes increased 82% from 69.4 MMcf to 126.2
MMcf, compared to the 1994 quarter. Although the Registrant's properties
continue to decline in oil and gas sales volumes year to year, the addition of
the 15% DGP III interest incrementally added 6,849 barrels and 72.9 MMcf to the
Registrant's production volumes in the 1995 quarter.
For the quarter, average oil prices increased 10%, from $15.84 per barrel in
the comparable 1994 period to $17.42 per barrel in 1995. Gas prices decreased
20%, from an average price of $1.86 per Mcf in the 1994 quarter to $1.49 per
Mcf in 1995's second quarter.
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The increase in oil and gas sales volumes contributed greatly to increasing the
1995 quarter revenues to $687,000 from $480,000 in the 1994 period.
Depreciation and depletion increased to $179,000 in the 1995 quarter versus
only $77,000 in the 1994 quarter, which is attributable to the increased
depletion expense from the 15% DGP III interest. The Registrant also recorded
a $117,000 severance benefit charge in the current quarter for which there was
no comparable charge in the 1994 second quarter. General and administrative
expenses declined from $301,000 in the 1994 second quarter to $189,000 in the
1995 second quarter.
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
The Registrant recorded a loss of $110,000, or $.02 per share, for the six
months ended June 30, 1995, compared to a loss of $2,185,000, or $.54 per
share, in the comparable 1994 period. The current period loss is due to
severance benefits paid in the second quarter, and to limited exploration
expenses of $193,000 that are a result of commitments made in 1994. The 1994
period losses are due to the combination of valuation reductions and
exploration expenses.
Production volumes increased during the year to year period comparisons. Oil
production for the first six months of 1995 totalled 42,871 barrels compared to
41,924 barrels in the 1994 period, reflecting a 2% increase. Gas volumes
increased more than 26% in the period to period comparison, from 153.5 MMcf in
the 1994 period to 194.1 MMcf in the 1995 period. Oil prices averaged $17.10
per barrel in the first half of 1995, reflecting a 19% increase in the period
to period comparison. Gas prices declined 18% from the 1994 to the 1995 six
month period, from $1.89 per Mcf to $1.55 per Mcf, respectively.
Revenues increased to $1,159,000 during the six month period in 1995, 23%
higher than the 1994 six month period total of $941,000. Expenses decreased
considerably as a result of limited exploration expenses and no valuation
writedowns. General and administrative expenses declined 30% from $579,000 in
the 1994 period to $403,000 in the 1995 period. Charges for severance benefits
totalled $117,000 for the current six month period for which there are no
comparable charges in the 1994 period.
Results for the first six months are impacted by the acquisition of interests
from DGP III, which was closed on April 6, 1995, but consolidated for reporting
purposes as of April 1, 1995. Without the consolidation of the DGP III
results, Registrant's reported loss would have increased to over $200,000.
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LIQUIDITY AND CAPITAL RESOURCES
The Registrant's working capital increased to $1,823,000 at June 30, 1995, from
$1,683,000 at December 31, 1994. Cash flows from operating activities
increased from $159,000 in the six month period in 1994 to $272,000 for the
comparable 1995 period. The increases in liquidity and cash flows are due to a
combination of factors including increased revenues and decreased general and
administrative expenses. Cash and marketable securities increased from
$1,624,000 at December 31, 1994, to $1,678,000 at June 30, 1995.
Cash payments of $9,000 were made for Federal and state income taxes for each
of the six months ending June 30, 1995 and 1994, respectively. The Registrant
received $3,000 and $80,000 in refunds for Federal and state income taxes for
the six months ending June 30, 1995 and 1994, respectively.
As discussed in the Management's Discussion and Analysis of the Results of
Operations for the three months ended June 30, 1995 and 1994, on April 6, 1995,
the Registrant consummated the transactions contemplated by an Exchange
Agreement between the Registrant and certain sellers. Of the $2,329,000 total
cost of this transaction, $2,194,000 was recorded as a non-cash portion of this
transaction.
The Registrant is unaware of any material exposure from actual or potential
claims or lawsuits, including those involving environmental matters. As such,
no liability is accrued at June 30, 1995 or December 31, 1994.
The Registrant currently has no bank debt or lines of credit. However, the
Registrant has executed a commitment with International Bank of Commerce, San
Antonio, Texas, and is currently in the final stages of documenting a line of
credit. The financing is to be a $5 million line of credit, with an initial
borrowing base of $1.5 million. Registrant continues to pursue various
acquisition opportunities, and intends to utilize its cash and marketable
securities together with drawdowns on the line of credit to accomplish the
purchase of oil and gas property acquisitions. As a result, balances on the
Registrant's marketable securities and cash may fluctuate in future periods.
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PART II
OTHER INFORMATION
Items 1, 2, 3, and 5 for which provision is made in the applicable regulations
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The Annual Meeting of the Registrant was held on May
17, 1995 in Houston, Texas.
(b) B. Travis Basham, Thomas R. Fuller, Robert R.
Hillery, E. Ralph Hines, Jr., Howell H. Howard,
Steven H. Mikel, James E. Nielson, Donald H. Wiese,
Jr. and Spencer L. Youngblood were elected to the
Registrant's Board of Directors.
(c) The following matters were voted on by the
Security-Holders of the Registrant:
Proposal No. 1:
Vote Tabulation
---------------------------------
For Withheld
--------------- --------------
Election of Directors
---------------------
B. Travis Basham 3,112,726 15,873
Thomas R. Fuller 3,112,726 15,873
Robert R. Hillery 3,112,726 15,873
E. Ralph Hines, Jr. 3,111,716 16,883
Howell H. Howard 3,112,726 15,873
Steven H. Mikel 3,112,726 15,873
James E. Nielson 3,107,726 20,873
Donald H. Wiese, Jr. 3,112,726 15,873
Spencer L. Youngblood 3,112,726 15,873
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Proposal No. 2
Approval of 1995 Non Employee Director Compensation Plan
For Against Abstain Non-Voted
-------------- --------------- -------------- --------------
2,878,043 222,664 27,199 693
Proposal No. 3
Approval of Appointment of Grant Thornton as Auditors for the year
ending December 31, 1995
For Against Abstain Non-Voted
-------------- --------------- -------------- --------------
3,076,939 8,835 42,825 0
No matters other than the Election of Directors, approval of the 1995 Non
Employee Director Compensation Plan and Appointment of Grant Thornton as the
Registrant's Auditors for the year ending December 31, 1995, came before the
Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as follows:
(27) (2) Financial Data Schedule for the six months ended June
30, 1995 (filed herewith).
(b) The Registrant filed reports on Form 8-K during the most recently
completed fiscal quarter as follows:
(1) A Current Report on Form 8-K dated April 6,
1995, reported the Registrant's acquisition
of SMC Production Co. under Item 2. and the
financial statements of the business acquired
under Item 7. A Current Report on Form 8-K/A
dated April 6, 1995, was filed in June 1995,
and reported the pro forma financial
information required by Item 7. for the SMC
Production Co. acquisition.
(2) A Current Report on Form 8-K dated June 9,
1995, announced the Registrant's odd lot
tender offer to shareholders of record who
own less than 100 shares of the Registrant's
common stock.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SOUTHERN MINERAL CORPORATION
Date: August 14, 1995 By /s/ Steven H. Mikel
Steven H. Mikel
President, Chief Executive Officer, and
Acting Principal Financial Officer
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